A rift within the property-casualty insurance business over how much government help, if any, the industry needs to handle catastrophes appears to be growing.

Last week, as trade organizations and carriers continued choosing sides, the Property Casualty Insurers Association of America (PCI) announced it was joining ProtectingAmerica.org, a group supported by Allstate, urging a federal-state system to backstop insurers after mega-catastrophes.

A portion of property insurance premiums that corresponds with the catastrophic risk to be covered would be deposited into the catastrophe funds, where they would grow tax-free. No tax dollars would be used to support the funds, and insurance companies could not use these funds for any purpose other than to pay claims from catastrophes that exceed a certain threshold.

Opposing this point of view is American Insurance Association, which represents some of the largest property-casualty insurers. Also in this camp now is Liberty Mutual, one of the largest members of the PCI.

PCI said it is joining ProtectingAmerica.org because that will "advance its commitment to find a comprehensive solution for catastrophe management."

ProtectingAmerica.org wants to increase public awareness and consumer education; advocate for better coordination with local, state and federal mitigation and recovery efforts, and strengthen emergency response and financial mechanisms to rebuild after a major catastrophe.

One of its goals is to persuade Congress to provide tax incentives for insurers to create catastrophe reserves in order to better help the industry cushion itself against a huge loss from a single event or group of events.

PCI President and CEO Ernie Csiszar explained that he is joining ProtectingAmerica.org because "eight of the 11 largest U.S. catastrophes have occurred in the last five years; with warnings that more frequent and furious storms are likely to hit our coasts in the near future and the increasing potential for earthquakes in America's heartland, the evidence is clear that America is at risk."

Mr. Csiszar added, "By coupling our ongoing efforts with the commitment of ProtectingAmerica.org, we can continue shaping solutions that address this problem before it is too late."

But an AIA official says there are both philosophical and practical concerns about the ProtectingAmerica.org approach.

"The reason we are not joining, is that while we agree with ProtectingAmerica.org on the need for better preparation and loss prevention in order to keep people and property out of harm's way, we think we must move away from a post-disaster 'spread the risk to everyone across the country' mentality to a system that honestly reflects the higher risks and costs of coastal development," said Julie Rochman, senior vice president for public affairs at AIA.

Two weeks ago, the AIA outlined its own game plan for dealing with catastrophes, calling for creation of a host of new laws and rules to encourage citizens to take hurricane loss prevention into their own hands.

Highlights of the new AIA proposal include creation of tax-advantaged Catastrophe Savings Accounts and state and/or federal matching grants designed to encourage property owners to invest in loss prevention tools, such as hurricane-resistant garage doors and window shutters.

Other proposals eyed by AIA include federal and state assistance to improve procedures related to claims adjustors to facilitate payments to disaster victims.

Liberty Mutual cited a recent op-ed commentary in the Wall Street Journal by Edmund Kelly, its chairman, president and CEO as representing its views.

"Instead of looking to government to create special funds, private insurers and public should press to reduce the costs of natural disasters before they occur," Mr. Kelly said.

He added, "They could explore incentives for homeowners and businesses to make their properties mostly storm-proof; find better ways to protect infrastructure; encourage building-code improvements; and develop sensible land-use planning to control construction in the most vulnerable areas."

Mr. Kelly said, "Further, regulatory processes need to allow insurance pricing to better reflect risks. Those who choose to live in catastrophe-prone areas should not be shielded from the consequences of their decisions by raising prices for people who opt for less risky locations."

ProtectingAmerica.org, said last week that it would be pushing its campaign with an advertorial campaign with full-page, opinion oriented advertisements running in the Wall Street Journal, New York Times, Washington Post and Washington Times.

The group said the campaign will highlight its web site www.protectingamerica.org, and advocate support of H.R. 4366, The Homeowners Insurance Protection Act, introduced last year by U.S. Rep. Virginia Brown-Waite, R-Fla.

Protecting America is led by former Federal Emergency Management Agency director James Lee Witt and former deputy secretary of the U.S. Department of Homeland Security James M. Loy.

"Catastrophe preparation is not strictly a consumer burden. Legislators throughout the country must recognize the need to better address how America prepares itself for catastrophe - before the next one strikes," said Mr. Loy, a retired Coast Guard admiral.

This article originally appeared in The National Underwriter P&C. For the complete article, please click here.

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